Cypress Semiconductor Corp. (NASDAQ:CY) this morning offered an encouraging look at how it and Spansion got along in the the first full quarter following their March merger.
The headline numbers
Cypress stock rose more than 8% in Thursday's early trading after the company revealed second-quarter revenue of $491.0 million, at the high end of its most recent guidance. That translated to adjusted net income of $52.9 million, or $0.15 per diluted share, which Cypress CEO T.J. Rodgers was quick to point out "represents a record relative to the last 10 quarters of the Cypress and Spansion pro forma combination."
Analysts, on average, were anticipating lower revenue of $487.5 million, and adjusted net income of just $0.13 per share.
The new way forward
The contribution of each of Cypress' business segments changed notably following the merger. In particular, combined revenue from Programmable Systems came in at $202.8 million, or an increase of 172% year over year, while the already-large Memory Products division jumped 205% over the same period to $261.4 million. Meanwhile, Emerging Technologies revenue increased 44% year over year to $7.7 million, and Data Communications rose a more modest 6% to $19.1 million.
On a geographic basis, Cypress' exposure to China continued to decline; the China and rest-of-world division represented around 41% of total sales, down sequentially from 49% last quarter. Making up the balance of Cypress' post-merger revenue was Japan at 34%, Europe at 14%, and the Americas at 11%. For perspective, three months ago Cypress stated Japan, Europe, and the Americas comprised 16%, 16%, and 19% of total revenue, respectively.
On integration progress and cross-selling success
"Our sales force is actively cross-selling products from our expanded product portfolio," Rodgers elaborated. "As a result, we have begun to see an increase in new opportunities at top-tier customers, particularly in the automotive market."
For example, Cypress secured one notable design win during the quarter from an unnamed "Tier 1 auto maker." This auto maker selected for its infotainment cluster in next-gen models Spansion's Traveo automotive MCU, HyperRAM and HyperFlash memories, and an analog Power Management IC. But thanks to the merger and cross-selling efforts, this also "opened the door" for the auto maker to incorporate one of Cypress' flagship PSoC programmable systems-on-a-chip as well.
Rogers further promised, "This is a dynamic we expect will repeat itself as customers become more familiar with the synergies of our new product portfolio."
Of course, it also helps that Cypress arranged "multiple sales conferences" to advance its cross-selling initiatives by training over 600 Cypress sales reps and distribution partners. Going forward, Rodgers says, "Cross-selling is a key part of Cypress' stated goal to take advantage of product and business synergies to grow both our top and bottom lines."
Finally, Cypress is ahead of schedule in efficiently combining the two businesses. So far since the merger, it has already exited 19 of the 27 sites planned for closure, reduced its headcount by 833 people, and achieved annualized synergies of $51.6 million as a result. Cypress continues to expect roughly $160 million in annualized synergies over the long term.
In the end, apart from the unfortunate nature of necessary headcount reductions, it's hard to find anything not to like about Cypress' solid performance this quarter. And that's especially impressive considering how many complications can arise following mergers of this magnitude. With shares of Cypress Semiconductor now trading at a reasonable 12 times next year's expected earnings even after the pop, it's no surprise the market is bidding Cypress stock up so aggressively today.